Conventional or New? Optimal Investment Allocation across Vintages of Technology
AbstractThis paper develops and analyzes a growth model that consists of complementary long-lived and short-lived vintage-specific capital. As a result of the existence of complementary capital that is vintage compatible but has different longevity, the model generates two distinct investment patterns: (i) if the rate of vintage-specific technological progress is above a threshold–which is the product of long-lived capital’s share and the difference in the rates of depreciation–then all new investment is allocated to the capital that embodies the frontier technology; (ii) otherwise, some investment is allocated to obsolete, short-lived capital to exploit the existing stock of obsolete long-lived capital. The result provides a new explanation for observed investment in obsolete technologies. An important implication of this result is that equipment price-changes do not necessarily reflect the rate of progress, since the prices of obsolete short-lived capital remain the same when the rate of the progress is slow enough (as mentioned in (ii) above). Another implication is that acceleration in the rate of vintage-specific technological progress can cause an abrupt reallocation of investment towards modern capital–consistent with investment booms that are concentrated in certain “high-tech” equipment.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6043.
Date of creation: 23 Nov 2007
Date of revision:
Vintage Capital; Intangible Capital; Capital Heterogeneity; Pricing of Capital Goods; Maintenance and Repair;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Laitner & Dmitriy Stolyarov, 2003. "Technological Change and the Stock Market," American Economic Review, American Economic Association, vol. 93(4), pages 1240-1267, September.
- Stephen D. Oliner & Daniel E. Sichel, 2002.
"Information technology and productivity: where are we now and where are we going?,"
Federal Reserve Bank of Atlanta, issue Q3, pages 15-44.
- Oliner, Stephen D. & Sichel, Daniel E., 2003. "Information technology and productivity: where are we now and where are we going?," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 477-503, July.
- Stephen D. Oliner & Daniel E. Sichel, 2002. "Information technology and productivity: where are we now and where are we going?," Finance and Economics Discussion Series 2002-29, Board of Governors of the Federal Reserve System (U.S.).
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996.
"Long-Run Implications of Investment-Specific Technological Change,"
RCER Working Papers
420, University of Rochester - Center for Economic Research (RCER).
- Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-62, June.
- Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
- Andrew Atkeson & Patrick J. Kehoe, 2005.
"Modeling and Measuring Organization Capital,"
Journal of Political Economy,
University of Chicago Press, vol. 113(5), pages 1026-1053, October.
- Ellen R. McGrattan & James A. Schmitz, Jr., 1999. "Maintenance and repair: too big to ignore," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13.
- Jovanovic, B. & Nyarko, Y., 1996.
"Learning by Doing and the Choice of Technology,"
96-25, C.V. Starr Center for Applied Economics, New York University.
- Prucha, Ingmar R. & Nadiri, M. Ishaq, 1996. "Endogenous capital utilization and productivity measurement in dynamic factor demand models Theory and an application to the U.S. electrical machinery industry," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 343-379.
- Leonardo Felli & F Ortalo-Magne, 1998.
"Technological Innovations Slumps and Booms,"
CEP Discussion Papers
dp0394, Centre for Economic Performance, LSE.
- Leonardo Felli & Francois Ortalo-Magne, . "Technological Innovations: Slumps and Booms," Penn CARESS Working Papers c468f14544cc51cba56e9b940, Penn Economics Department.
- Leonardo Felli & Francois Ortalo-Magne, . ""Technological Innovations: Slumps and Booms''," CARESS Working Papres 97-17, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Leonardo Felli & Francois Ortalo-Magne, 1997. "Technological Innovations: Slumps and Booms," Microeconomics 9711002, EconWPA.
- Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
- Mullen, J. K. & Williams, Martin, 2004. "Maintenance and repair expenditures: determinants and tradeoffs with new capital goods," Journal of Economics and Business, Elsevier, vol. 56(6), pages 483-499.
- Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
- Boyan Jovanovic, 2009.
"When should firms invest in old capital?,"
International Journal of Economic Theory,
The International Society for Economic Theory, vol. 5(1), pages 107-123.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.